Liberty. It’s a simple idea, but it’s also the linchpin of a complex system of values and practices: justice, prosperity, responsibility, toleration, cooperation, and peace. Many people believe that liberty is the core political value of modern civilization itself, the one that gives substance and form to all the other values of social life. They’re called libertarians.

Thursday, June 28, 2012

Free Economy and Social Order

Most of us, and all of us most of the time, deal with the market
economy as a definite type of economic order, a sort of "economic
technique" as opposed to the socialist "technique." For this view, it is
significant that we call its constructional principle the "price
mechanism." Here we move in the world of prices, of markets, of supply
and demand, of competition, of wage rates, of interest rates, of
exchange rates, and whatnot.
That is, of course, right and proper — as far as it goes. But there
is a great danger of overlooking an important fact: the market economy
as an economic order must be correlated to a certain structure of
society, and to a definite mental climate which is appropriate to it.
The success of the market economy wherever it has been restored in
our time — most conspicuously in western Germany — has resulted, even in
some socialist circles, in a tendency to appropriate the market economy
as a technical device capable of being built into a society which, in
all other respects, is socialist.
The market economy then appears as part of a comprehensive social and
political system which, in its conception, is a highly centralized
colossal machinery. In that sense, there has always been a sector of
market economy also in the Soviet system, but we all realize that this
sector is a mere gadget, a technical device, not a living thing. Why?
Because the market economy as a field of liberty, spontaneity, and free
coordination cannot thrive in a social system which is the very
opposite.
That leads to my first main proposition: the market economy rests on
two essential pillars, not on one alone. It assumes not only the freedom
of prices and competition (whose virtues the new socialist adepts of
the market economy now reluctantly acknowledge), but rests equally on
the institution of private property. This property must be
genuine. It must comprise all the rights of free disposal without which —
as formerly in Nationalist Socialist Germany and today in Norway — it
becomes an empty legal shell. To these rights must be added the right to
bequeath property.
Property in a free society has a double function. It means not only
that the individual sphere of decision and responsibility is, as we have
learned as lawyers, demarcated against other individuals, but it also
means that property protects the individual sphere against the
government and its ever-present tendency toward omnipotence. It is both a
horizontal and a vertical boundary. And it is in this double function
that property must be understood as the indispensable condition of
liberty.
It is curious and saddening to see how blind the average type of
socialist is vis-à-vis the economic, moral, and sociological functions
of property, and even more that particular social philosophy in which
property must be rooted. In this tendency to ignore the meaning of
property, socialism has made enormous progress in our time. Traces of
this may be discovered even in modern discussion on the problems of
enterprise and management, which sometimes give the impression that the
property owner is the "forgotten man" of our age.

The Role of Private Property

The intellectual constructions of "market socialism" are a good
example of how the most serious fallacies ensue if we overlook the
functions of private property. These fallacies can already be
demonstrated on the level of ordinary economic analysis. But I wish to
suggest that it is the whole social climate, the form of life, and the
habits of planning for life which matter.
There is a definite "leftist" ideology, inspired by excessive social
rationalism, as opposed to a "rightist," conservative one, respecting
certain things we cannot touch, weigh, or measure but which are of
sovereign importance. The real role of property cannot be understood
unless we see it as one of the most important examples of something of
much wider significance.
It illustrates the fact that the market economy is a form of economic
order that is correlated to a concept of life and a socio-moral pattern
which, for want of an appropriate English or French term, we may call buergerliche in the wide sense of this German word, which is largely free of the disparaging associations of the adjective "bourgeois."
This buergerliche foundation of the market economy must be
frankly acknowledged. All the more so because a century of Marxist
propaganda and intellectualist romanticism has been astonishingly and
alarmingly successful in spreading a parody of this concept. In fact,
the market economy can thrive only as part of and surrounded by a buergerliche social order.
Its place is in a society where certain elementary things are
respected and are coloring the whole life of the community: individual
responsibility; respect of certain indisputable norms; the individual's
honest and serious struggle to get ahead and develop his faculties;
independence anchored in property; responsible planning of one's own
life and that of one's family; thriftiness; enterprise; assuming well
calculated risks; the sense of workmanship; the right relation to nature
and the community; the sense of continuity and tradition; the courage
to brave the uncertainties of life on one's own account; the sense of
the natural order of things.
Those who find all this contemptible and reeking of narrow-mindedness
and "reaction" must be seriously asked to reveal their own scale of
values and to tell us what kind of values they want to defend against
communism without borrowing ideas from it.
That is only another way of saying that the market economy supposes a
society which is the opposite of a "proletarianized" one, the opposite
of a mass society — with its lack of a solid and necessarily
hierarchical structure, and its corresponding sense of being uprooted.
Independence, property, individual reserves, natural anchors of life,
saving, thrift, responsibility, reasonable planning of life, all these
are alien to such a society. They are destroyed by it, at least to that
extent that they cease to give the tone to society. But we must realize
that these are precisely the conditions of a durable free society.
The moment has come to see clearly that this is the real watershed of
social philosophies. Here the ultimate parting of ways takes place, and
there is no getting around the fact that the concepts and patterns of
life which clash against each other in this field are decisive for the
fate of society, and that they are irreconcilable.
Once we admit this, we must be prepared to see its significance in
every field and to draw the corresponding conclusions. It is indeed
remarkable to see how far we all are already drawn into the habits of
thinking of an essentially unbuergerliche world. That is a fact which the economists also ought to take to heart, for they are among the worst sinners.
Enchanted by the elegance of a certain type of analysis, how often we
discuss the problems of aggregate savings and investments, the
hydraulics of income flows, the attractions of vast schemes of economic
stabilization and of social security, the beauties of advertising or
installment credits, the advantages of "functional" public finance, the
progress of giant enterprise and whatnot, without realizing that, in
doing so, we take for granted a society which is already largely
deprived of those buergerliche conditions and habits which I described.
It is shocking to think how far our minds are already moving in terms
of a proletarianized, mechanized, centralized mass society. It has
become almost impossible for us to reason other than, in terms of income
and expenditure, of input and output, having forgotten to think in
terms of property. That is, by the way, the deepest reason for my own
fundamental and insurmountable distrust in Keynesian and post-Keynesian
economics.
It is, indeed, highly significant that Keynes attained fame mostly
for his trite and cynical remark that "in the long run, we are all
dead." And it is even more significant that so many contemporary
economists have found this dictum particularly spiritual and
progressive. But let us remember that it only echoes the slogan of the
Ancien Regime in the 18th century: Apres nous le deluge. And let us ask why this is so significant. Because it reveals the decidedly unbuergerliche,
the Bohemian spirit of this modern trend in economics and in economic
policy. It betrays the new hardboiled happy-go-luckiness, the tendency
to live from hand to mouth, and to make the style of the Bohemian the
new watchword for a more enlightened generation.
To incur debts becomes a positive virtue; to save, a capital sin. To
live beyond one's means, as individuals and as nations, is the logical
consequence. But what else is this than Entbuergerlichung,
deracination, proletarianization, nomadization? And is not this the very
opposite of our concept of civilization which is derived from civis, the Buerger?
Muddling through from day to day and from one expedient to another,
to boast that "money does not matter" — that is, indeed, the opposite of
an honest, disciplined, and orderly concept and plan of life. The
income of people living on these lines may have become buergerliche, but their style of life is still proletarian.

A Growing Concept

It is clearly impossible in the space of a short article to study the
impact of all this in all the important fields. I have discussed it in
regards to private property. It is further very disquieting to see how
this concept has permeated more and more the economic and social
policies of our time. One major example is the Mitbestimmungsrecht
(codetermination — the right of workers and trade-union representatives
to participate in the administration of industrial enterprises and thus
to take over some functions of proper ownership) in West Germany.
To give an illustration: the director of a large power plant in
Germany tells me how silly he felt the other day when, in wage
negotiations with trade-union officials, he had to deal with the same
men who, at the same time, sit beside him at meetings of trustees of the
power plants themselves. He adds that the structure of enterprises in
West Germany approaches more and more that which Tito seems to have in
mind. And that is happening in the very country which is considered
today the model of a successful restoration of the free-market economy!
Another example of this gradual dissolution of the meaning of
property, and of the corresponding norms, which can be observed in many
countries, is the softening of the responsibility of the debtor. By lax
legal procedure with regard to execution and bankruptcy, this, more
often than not, amounts — in the name of social justice — to the
expropriation of the creditor. It is hardly necessary to recall, in this
connection, the expropriation of the hapless class of house owners by
rent control, and the effects of progressive taxation.
Let us apply our reflections to another most important field: money.
Let us recognize that respect for money as something intangible is,
like property, an essential part of the social order and of the
mentality which are the prerequisites of the market economy.
To illustrate my case, I want to tell two stories which I take from
the financial history of France. At the end of 1870, Gambetta, the
leader of the French Resistance after the defeat of the Second Empire,
left the besieged capital in a balloon for Tours to create the new
republican army. In his desperate need for money, he remembered that his
admired predecessors of the Revolution had financed their wars by
printing and assignats. He asked the representative of the Banque de
France to print for him a few hundred million notes. But he met with a
flat and indignant refusal. At that time, such a demand was considered
so monstrous that Gambetta did not insist. The Jacobin firebrand and
all-powerful dictator yielded to the determined no of the
representative of the central bank who would not accept even a supreme
national emergency as an excuse for the crime of inflation.

A few months later, the socialist revolt known as the Commune
occurred in Paris. The gold reserves and the plates of the notes of the
Banque de France were at the mercy of the revolutionaries. But, badly in
need of money and politically unscrupulous as they were, they strongly
resisted the temptation to lay their hands on them. In the very midst of
the flames of civil war, the central bank and its money were sacrosanct
to them.
The significance of these two stories will not escape anyone. It
would, indeed, be harsh to ask what has become of this respect for money
in our time, not least of all in France. To restore this respect and
the corresponding discipline in money and credit policy is one of the
most important conditions for the durable success of all our efforts to
restore and maintain a free economy and, therewith, a free society.